Otago likely to lag behind in economic upturn

AUCKLAND: A report by one of the biggest banks in New Zealand says the big metropolitan areas are likely to drive economic recovery this year, and that furtherincreasing house prices will play a big role.

Westpac’s Regional Roundup predicts spending activity on the back of skyrocketing house prices in places like Wellington, Auckland and Christchurch will effectively close the performance gap with already highflying rural regions.

The report showed many rural areas, supported by strong commodity prices and demand for goods, had not been badly affected by the economic downturn caused by Covid19.

But regions exposed to foreign tourism, such as Auckland and Central Otago, recorded a greater impact on their economies.

Westpac’s industry economist, Paul Clark, told RNZ regions with traditionally rural economies were essentially operating at preCovid levels, including Bay of Plenty, Hawke’s Bay, Gisborne and Northland.

China’s economic strength during the pandemic had propped up New Zealand’s regional exporters and commodity prices had remained relatively firm.

‘‘The economy in general has shown quite a strong recovery and we think a lot of the regions are showing a similar trend and it’s really those regions that have a strong regional background . . . we’re talking about agriculture, horticulture and forestry,’’ he said.

The big metropolitan regions of Wellington, Auckland and Christchurch, where service industries were significantly affected by lockdowns, and tourismdependent Otago, had more catching up to do.

However, the biggest gains expected this year are in these big centres, which will close the gap, bolstered by further increasing house prices, Mr Clark said.

‘‘They’re likely to make up a lot of ground and a lot of that has got to do with the housing market, which we think will perform well over the coming year and that will drive household spending in these regions.’’

He said the Reserve Bank should be made to consider house price stability when setting policy for the economy.

Mr Clark said a proposed travel bubble with Australia early this year would be good news, particularly for places like Otago, Southland and Auckland.

The regions also stand to benefit most from a gradual lifting of restrictions on travellers from other countries later in the year, although he thought a return to preCovid vibrancy in tourism remained some way off.

‘‘That is the key reason why we think Otago will remain New Zealand’s weakest performing region over the coming year,’’ he said. — RNZ